CAC would like to thank Mr. Greg Lewis for his time and generosity in providing us with the necessary grading sets and technical information on Franklin Half Dollars. Mr. Lewis, who has devoted much time and energy to the study of the Full Bell Line, has done CAC a great service by enlightening us to these pertinent details.

This reference set applies the FBL (Full Bell Lines) Standard most commonly employed by experienced Franklin collectors: Full separation of the bottom two lines on the Liberty Bell. No major disturbances of these two lines including cuts, marks, planchet imperfections, or striking deficiencies are allowed if they obfuscate the “valley” that separates the two lines.

The coins in this Reference Set can be generally divided into three groups:

Near-FBL Coin 9

1960-D

Technically a “just barely made it” FBL. However, the abrasive scraping across the BL’s to the left of the clapper and, to a lesser degree, to the right of the clapper, are frowned upon by collectors and knock this coin out of the FBL category.

Near-FBL Coin 10

1958-D

True borderline FBL. This lands squarely in the gray zone where an experienced Franklin collector would likely call it FBL one day and non-FBL the next. The author would give this coin the nod more oftentimes than not.

FBL Coin 11

1959

FBL Coin 12

1961

FBL Coin 13

1958

Interestingly, this particular coin/image illustrates an important point to bear in mind regarding bell lines: you cannot always judge a Franklin’s bell line status from a picture. Due to the nature of web based pix, and variable factors such as angle, and lighting, this particular coin’s pic does not appear to be FBL (even though it is FBL “in-hand”). An in-hand examination of the coin is imperative with many coins.

A grading service grading other services’ coins? What’s going on?

You’ve heard about CAC [CERTIFIED ACCEPTANCE CORPORATION]. They’re the ones affixing labels or stickers to already slabbed coins attesting to the “premium quality” of the encased going – a sort of Good Housekeeping Seal of Approval. We all know that the variance in quality among slabbed coins of the same issue and grade can be substantial. If the grading services properly anticipated – and provided for – the growing problem of “C” and “D-quality” coins, there would be no need for CAC. For sure, no two coins are alike and grading is an art not a science. Unfortunately, after 22-years of grading, and after tens of millions of coins have entered the marketplace, the advertised solutions that the grading services promised to us have yet to be fully delivered.

The problem? The “bottom-of-the-barrel” coins have been dragging down the market for the solid-for-the-grade coins. The sight-unseen bidding system recognizes the ugly truth that the worst coins in holders might be put to a dealer forced to pay his bid. His defense? Lower his bids to provide for that contingency. Sight-seen bidding, on the other hand, permits the bidder the option of first viewing the coin to determine if he is satisfied with it – with no obligation to buy the coin.

As time went on, as the nice coins have been squirreled away by savvy collectors, investors and dealers, the bottom-dwellers took on a growing presence in the market. Their ranks have also been bloated by successful crack-outs, the resubmission of coins to the same or another service with the hopes of receiving a higher grade. What may have been a holdered 64-“A” or “B” coin gets bumped up a grade and becomes a 65-“C” or 65-“D” coin. In its original holder, it was a premium coin. In its new holder it’s a likely reject from anyone with proper experience and taste. All things considered, we are still much better off than before the services existed. But the trend of increasing buyer sophistication and discrimination has been looking for a way to take grading to the next level, where people can trade coins with more confidence and where the prices of the “A” and “B” coins are not encumbered by the lid placed on them from the “C” and “D” coins.

That’s where CAC comes into focus. Launched last November, CAC is already making waves. Thousands of coins have been “labelled” and, importantly, sight-seen bid prices for many coins have been increasing nicely, waking up from years of under-performance.

John Albanese, a noted numismatic authority whom you’ve met here as a frequent interview subject and Crystal Ball participant, is the founder and President of CAC. This interview took place during mid-March.

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MR:Let’s talk about gradeflation. Way back in 1976, the first year of The RNA, I coined that term when describing the aftermath of the 1971-74 bull market. Little did I know that we’d still be experiencing over 32 years later. As a background for the creation of CAC, tell me, John, your experience with gradeflation from its beginnings through today.

JA: It’s really a dynamic of market cycles, market grading, and faulty price guides. There have also been periods of grade-deflation, when grading became stricter. I’d like to use the example of a MS-65 Barber Quarter to describe the evolution of gradeflation. That’s a popular Type Coin, a strong proxy for the market. When I was buying gem goings in the 1970’s, grading was pretty stable. Going by the Greysheet, in 1977 the MS-65 coin was bid at $300. That price referred to a strong MS-65, what I would call today a solid “B” coin. In 1978, the market was a little stronger, bullion was heating up, and the bid rose to $325 which related again to the same solid “B” coin.

In 1979, prices for coins and precious metals were much stronger. In March the coin was bid at $375, but by December it soared to $1,050! However, the coin that brought $375 earlier in the year was now bringing $1,500-$2,000, despite the $1,050 bid. [MR: This is a classic example of my Market Premium Factor at work. Here, the MPF was upwards of 67%. By contrast the coin you would have reasonably purchased if you paid near the $1,050 bid was a MS-63+ or MS-64.] If I’m paying $1,750 for that coin in 1979, how am I going to describe it and price it at $2,100 if the bid is much lower at $1,050? A customer would point to the Greysheet saying the coin is priced at double bid. So by paying a fair price myself, and charging an honest markup, I had to describe the coin as a MS-65+ or MS-67.

Here the Greysheet failed to reflect the true market value – and, by proxy, for so many other coins as well. Whether that was due to an antiquated teletype system, the folks at the Greysheet not attending enough shows or receiving too little pricing data or listening to too few dealers, I don’t know but the real market value for coins was not being adequately reported. As a result, I, and everyone else, was forced to employ “market grading.” If, instead, the Greysheet reported a bid of $1,750, the coin would be sold as a MS-65. Most retailers had no choice other than to describe the coin as better than MS-65 to justify their selling price.

We move on to April 1980 when the bid is $2,450, but the dealers are happily paying $3,500-$4,000 and forced to market the coin as MS-65+ or MS-67. From March 1979 to April 1980 the coin went up by almost 900% — not unusual for many Type Coins! Then in April 1980 the market crashed, buyers backed away and sellers dominated. Just one month later in May, despite the Greysheet showing a higher bid of $2,500, the coin that cost $3,500-$4,000 was now going for half as much, and the coin that you could get if you paid the full $2,500 bid was a true MS-65+. So where I was faulting the Greysheet for not raising their bids fast enough which caused gradeflation, now, by stubbornly leaving the bid at the former level, they forced grade-deflation.

By the time the coin market hit its bottom in August 1982, the Barber Quarter was bid at $1,000. But that price related more to a MS-67 than to a MS-65. A decent MS-65 might have cost $600, or 40% less [MR: What I term the Market Discount Factor]. Thereafter, the market got stronger, to the point just before PCGS came into operation in early 1986 when the reported MS-65 bid rose to $2,500. However, the few bidders then were extremely selective, demanding an MS-67 coin for their posted MS-65 bid. The bidders were raising prices almost every week to support their own specialized marketing plans but buying few, if any, MS-65 coins at their MS-65 bids.

When PCGS began in February 1986 – NGC started in later 1987 – we essentially inherited a market structure with very high published prices. Morgan $1s in MS-65 were $800! Graders can’t help but be affected by the market. Here I am grading at NGC in 1987/88 with a nice Morgan $1 in my hands. If I call it MS-65 it’s going to be worth $500+. Many of those coins were MS-66s at the least. It was tough to grade the coin knowing it would command $500+. Market grading forced the tighter grading. If bid were, say, a more market-reflective $200, then a lot of coins that didn’t grade MS-65 would have. The market actually adjusted as MS-64s traded for that $200.

Think back to those hectic times of 1989, Maurice, when Proof-68 Barber Quarters were $40,000, when MS-66 $20 Saints were $12,000, and so on. The services were very reluctant to hand out those grades. I know I was. That was when Wall Street money was coming in and rumored to be even more substantial. It was when a large buyer named Iraj Sayah spent multi-millions which caused rumors of foreign buyers coming into the market. We had the “perfect storm”: Wall Street, rumors of huge money coming in, a new grading and marketing mechanism (slabs) with strict grading, great press, and a thin supply of nice coins to satisfy demand. I mean Texas commems in MS-67 at $5,000, a Proof-67 Trade $1 at $100,000! Then came the inevitable collapse in 1990. Thereafter, through the 1990’s, except for rarities, it was a pretty rough decade for coins.

That brings us to the recession of 2001/02, “9/11,” the stock market bottom in 2002, and the Federal Reserve’s mission to lower interest rates from 6% to eventually 1%. And, of course, gold rising from a low $250 in 2001 to where it is today. I credit the growth of the internet for helping to minimize gradeflation as more people became educated about coins and privy to many new resources, Web sites and chat rooms. They became more sophisticated consumers.

As for the grading, since the 1990’s, much of the product coming out of the grading services was “A” or “B” quality. Whereas those coins were leaving the market, the “C” coins weren’t. They tended to linger in dealer inventories. I got to the point where even though the “C’s” were a minority of the coins graded, they represented as much as 90% of certain dealers’ inventories and auctions! That presented a problem for bidders on the system. Seeing so many lower quality coins in the market influenced them to lower their bids for fear of buying coins they would have troubling selling at a profit. Their bids reflected the possibility of the worst coin being put to them.

This comes down to whether “A” and “B” coins should really trade at a premium or should “C” coins trade a discount. My feeling is that “A” and “B” coins have traded at a discount and haven’t kept up with our expectations because the “C” coins [MR: as well as the “D” coins discussed later] are keeping them down. If we consider market grading, and you’re sitting in the grading room when looking at a MS-65 Morgan $1 that came down from $800 to $80, and you’re doing a competent job, you’re grading a coin differently at $80 than you were when it was $800.

That Natural process allows the grader to be more relaxed when grading. He might be thinking, “The coin has a couple marks, but it’s okay for a 65.” He’s justified to do that but it lead to gradeflation. It wasn’t a conscious attempt of the services to do this; they reacted to the market.

To help hold the line on grading, I believe that grading or reference sets are necessary at the services. You don’t have to have one for every series. Say for Liberty Seated and Barber coins one coin in every grade irrespective of denomination would suffice. A skilled grader can extrapolate. Graders should spend 30 to 60 minutes each week looking at the set – a tune-up in which they recalibrate their mind-set to avoid getting into a rut. To me, this is very important.

MR:Given all this John, why did you start CAC?

JA: I felt we were basically in a death spiral. I saw the “C” coins dragging down the prices of “A” and “B” coins. Throughout my career I’ve always tried to buy the “A” and “B” coins. I felt that someone just had to push back. I felt strongly that the “A” and “B” coins needed to trade on their own, to be decoupled from the “C” coins. I felt the best way to accomplish that was to start CAC. Earlier in the interview I was critical of The Greysheet for contributing to gradeflation. The Greysheet changed ownership in 1984. Since then I’m glad to say there’s been a decided improvement. They’ve been much more responsive, reporting the prices as they see them.

MR:What do you hope to achieve with CAC?

JA: We will ignore the less than “B” coins. We know it’s going to be hard but we’re barely in the first inning and have achieved some impressive success. Greysheet bids are strong since we started, but Bluesheet prices (sigh-unseen bids as opposed to the Greysheet’s sight-seen bids) have not been as strong. We’re already seeing a start to the decoupling we hoped to achieve. We expect volatility in prices; what we shouldn’t expect is volatility in grading. That’s our mission.

MR:Have you encountered any obstacles in developing and carrying out your mission?

JA: Clearly, there have been obstacles from the dealers selling the “C” coins. They are starting to encounter problems selling their coins because we’re making markets in “A” and “B” coins, not “C” coins. However, the bigger problem is people not fully understanding our program. That’s probably my fault for taking a low-key approach to this point, not aggressively advertising and marketing CAC. That will be addressed soon enough, and your advisory, Maurice, will be a big help to us. Our efforts have been to get the product out there, encourage submissions, allowing the product to speak for itself. The market will eventually determine how successful we’ll be.

I have dealers calling me telling me they don’t need me to tell them their coin is PQ. I tell them they’re right, but the problem is the guy a few tables down from them has coins for sale at much lower prices then they do. Their nicer coins need to distinguished from the pack. I’m not disparaging the other coins; after all, a “C” is a passing grade. I just don’t believe that a minority of less-than-solid-grade coins coming out of the services should dictate the entire marketplace.

MR: Since the start of this decade, we’ve seen gold go up over four times in price, silver over five times, yet by any measure, rare coins have severely lagged. On your Web site (CACcoin.com) you address this by using the 1922-P $20 as an example. Please tell me how the under-performance the rare coin market has experienced might reverse with CAC.

JA: Before I get into that, understand that there are other factors in play that account for the lag in coin performance vis-à-vis gold. For one, gold stock prices in general have lagged the metal. Actually, coin-to-gold price comparisons did well into 2006. Since then, gold started to spike up, and the preponderance of “C” coins in the market served to cap further increases for many coin prices. Importantly, the huge wave of the previous few years of discretionary spending, the positive wealth effect of rising housing prices, low interest rates, and a strong stock market gave way to a slowing economy and the emergence of the subprime and credit crisis. So, the feeling of good times is unraveling for many folks.

So far I’ve talked about “A,” “B” and “C” coins. Now I’ll address the “D” coins. The population of the MS-65 1922-P $20 has absolutely exploded over the last several years, maybe on the order of 30 to 40 multiple! So far the CAC we’ve had some 75 pieces submitted and I think only four have qualified! If I had to give you one coin where there is the greatest variance in the perception of quality between CAC and the grading services, I’d point to that coin. The 1923-P $20 is another good example as are several earlier, mid-priced Saints. I’m bidding $4,000 for the 1922-P and $5,000 for the 1923-P and would gladly buy the right MS-65. There just aren’t too many out there. In fact, those were the bids back in the year 2000 before the coin market got strong and when gold was below $300. These are but two examples of many great buys available today.

MR:Of all the vintage (non-modern) coins that exist in PCGS and NGC holders today, what percentage would you say would qualify for the CAC green label?

JA: I would say it’s a high percentage, upwards of 80% or so. We unveiled our service at a Connecticut show last fall. We offered free submissions to the public. Some 500-600 coins were brought to us of which about 85% were labeled. On the other hand, if you were to go through a typical dealer’s showcase on the bourse floor of a show, it could be less than half that rate. So far, that’s been our experience based on current submissions.

MR:Besides the “A,” “B,” and “C” coins, we’ve seen what I describe as “D” and “F” coins, mistakes and horrible mistakes which lead us to wonder “What were they smoking when they holdered that coin.” I ask you, how did those coins get holdered in the first place?

JA: I wish I knew. I’ve already taken about 15 CAC labeled coins off the market that made me wonder how this happens. I think it’s just that graders are human. Try as we all do we’re not perfect. Clearly, you want to keep that to a minimum. We offer a buy-back guarantee. If I agree that the coin shouldn’t be labeled, I take it off the market, remove the label and sell it for a loss.

MR:What about the problem of doctored coins.

JA: For sure, doctored coins have been a problem but I think it’s one that has been overblown. Certain dealers play that up as a way of explaining the underperformance of rare coins in the face of rising gold prices. A dealer who’s sold a bunch of MS-65 $20 Saints to an investor a few years ago, at say $1,500, and now their prices are up only 5-10% while gold has doubled is avoiding the real issues to his customer by badmouthing a “proliferation of doctored coins.” The grading services put out statements that they are going to get tough on doctors and be far more vigilant. They’re taking a firm stand. I’m happy to see that and believe that doctoring will become much less of a problem as we go forward.

MR:What premiums do you see CAC coins bringing in the marketplace?

JA: They are bringing premiums from what I’ve read although I don’t think most are brining much of a premium. In the first place, “A” and “B” coins bring premiums anyway, always have. We also chose not to hype-up our service bur rather see how the market accepted us. I don’t know of anyone paying big premiums for CAC coins. I think they’re trading for what they’re worth which is exactly what we hope to achieve. The whole notion of CAC was not to make those coins worth a premium but to properly distinguish them from the “C” and lesser quality coins.

MR:Please discuss the trading market that is developing for CAC coins. When will it be introduced? Also, how much capital is supporting CAC.

JA: It’s somewhat informal. CAC coins are not now listed on the CCE coin exchange. We’re developing our own trading system named Coinplex that will trade CAC coins, as well as all other certified coins from any service. We’re only weeks away from it being introduced. At only $100/month, we should have a large audience. The initial capital for CAC is $10 million with commitments for up to $25 million. We will also be retaining earnings so this can be substantial in five years. But please understand that we’re not trying to promote the idea of sigh-unseen bidding. Coins are works of art and must appeal to a buyer whether stickered by CAC or not.

MR:Are there any disadvantaged factions in the business that would like to see CAC fail?

JA: As you know there are dealers who look to sell nice coins. CAC coins will be rewarded. As we de-link the “A” and “B” coins from the others, our’s will have a better chance of performing well in the market. If you were selling the “C” or “D” coins and buying strictly based on price, you can have a problem. I would imagine that they would be happy if we just went away.

MR:Should the services be more careful when grading less than “A” and “B” quality coins to reduce their error rate of off-quality coins?

JA: Perhaps there’s some merit to that but keep in mind that “C” is a passing grade. If a “C” coin comes into a grading service it must properly be graded for what it is. You can’t call a 65-C coin a 64. The issue here is that we have a very discriminating public buyer who wants to buy quality coins. Whether it’s coins or anything else, people are getting smarter when they buy things. These folks don’t really aspire to put together a collection of “C” and “D” coins that barely make or miss the grade. They want value for their money and are expressing their demands.

MR:Do you have any desire to one day start your own coin grading service?

JA: I really don’t, and even if I did, as I mentioned earlier, if a “C” coin came in it would have to be identified as being in its full numerical grade, not a point lower. I think the present services have established a nice baseline. Let’s remember also that most of the rare coins in existence have already been graded, so what would be the point? There would just be a lot of wasted plastic as people crack coins out of their holders. It would be very confusing. PCGS and NGC are already embedded in the market. Introducing CAC is confusing enough.

MR:Of all the vintage U.S. coins in existence, what percent of the ones worthy of being slabbed (eliminating those that would be body-bagged) have already been slabbed?

JA: It’s obviously impossible for us to know what’s out there but I think it’s fair to say that on the low end it’s 75%. The services have essentially graded close to all of those coins.

MR:That being so, then what’s the future of the grading services?

JA: There are plenty of generic coins still out there. From what I understand PCGS is opening submission centers across Europe. World coin grading is a big concept now. Then you have modern coins which represents an almost infinite supply going into the future, assuming the market remains buoyant. Also, PCGS and NGC are into other fields besides coins, including paper money, gemstones, comic books, cards and so on.

MR:Just what goes into your decision to label a coin submitted to CAC?

JA: It all depends on the series. CAC has capital commitments of $25 million, 51% of which is my contribution. Essentially, if we put our sticker on the holder it means we’re happy buyers of the coin that grade. That might not sound too technical but we’re willing to put our money where our opinion is. Other dealers will be coming on board as well. We think it will prove out when our trading platform is an operation. While we can’t be expected to make markets in every coin in every grade, we believe that CAC markets will be deeper than any other market.

MR:How can you hold the line on your grading such that your interpretations won’t change over time, as has happened for the grading services.

JA: Let’s say that we do a poor job. If we do than we have to buy our own coins back and we wouldn’t last very long. We could have $25 million of low-end unsalable inventory and be out of business. So it’s in CAC’s best interest to maintain the standard because we are consuming our own product. It’s like owning a restaurant where we eat every meal, so we’re not going to be serving poor quality food. Or it’s like a prospective home buying desiring to buy a “builder’s home.” Why is that? – because he built it for himself. In effect, we’re grading for ourselves.

MR: Of all the coinage series, which ones have the best and least chance of being labeled?

JA: From what I’ve noticed over the decades the series that has held up the best is proof nickel coinage. They’re small coins, of a hard metal, and don’t pick up too many hairlines. So a proof 3¢ nickel might have a 75% chance of being stickered. MS-65 and MS-66 $20 Saints have a much lower success rate of being stickered. Why? We see them differently. We have a different standard. I don’t think it’s a secret. If you would ask the typical dealer or collector what area the services should be grading tighter, they’d probably say $20 Saints. That’s unfortunate as $20 Saints have often been regarded as a “poster coin” for investment numismatics.

MR:Let’s leave CAC for a while and look at the opportunities in today’s market for investors. What are your general comments and the area you like the best?

JA: For the most part, nice coins are in very strong hands. A lot of well-to-do people have been buying coins and are more likely to sell other assets should they need to raise cash. Clearly, the higher gold and silver prices are a strong support for the market. Many coin issues that have lagged and underperformed are ripe for big upward moves. I like virtually every Type Coin in Mint State and Proof 64 and higher, and Proof Gold. Many are priced at a third or a quarter where they were in 1980 when gold was over 15% less than where it is today. Basic issues like 3¢ Nickels, Shield and Liberty Nickels are bargains. The more exotic types, such as Bust, No Motto, Stars Obverse and Arrows Seated issues are wonderful buys. The tough part is finding the coins.

MR:What potential do you see for these coins?

JA: Well, we talked about the MS-65 Barber Quarter which was $2,500 for a long time and now is $1,100 bid. I believe if the price doubled to $2,200, it would be no big deal, the price would hardly be deemed out of whack. You could almost throw a dart at the sheet of Type Coins and do well with whatever you buy – assuming, of course, that you bought nice coins at fair prices.

MR:Some people shy away from small-sized coins, such as 3¢ Silvers and Half-Dimes, are more drawn to larger-sized coins. Should an investor take that into consideration?

JA: It never was that way. I remember when the 1980 market was on fire. Gem 3¢ Silvers, Half-Dimes, you name it, sold as well as anything else. I think that emanates from the seller and the lack of properly educated new buyers. When novices first come into coins they are usually drawn to gold. If you offer them a 3¢ Silver of Half-Dime they’ll react negatively, preferring a big gold, or even silver, coin. As they learn and graduate into other stages, they may begin to appreciate coins for their rarity and collector appeal irrespective of the coin’s size. That’s been my experience. Also, understand that preference for large coins is already priced into the market, something we already see in Proof Gold across the denominations for the same coinage year.

MR:What about Commems? Talk about coins in the doghouse for a long time.

JA: I’ve been wrong about them for a few years but now they seem even more undervalued. I’m looking at people moving up from the modern coin market to areas such as Commems, which have similar themes and attractive qualities as moderns. Many issues have a very low price spread between MS-65 and MS-63, even down to AU, that buyers can find good value. In the earlier issue, many prices here have been destroyed by the “C” and “D” coins. That’s especially true for the Alabama, Missouri, Isabella, Lafayette, Grants, etc. I was buying Alabamas years ago at $2,000 when gold was under $400. Now bid is $1,200! Take a look at the 1921 Pilgrim at $365 bid. It’s done nothing for years while gold and silver has soared; finding a solid “B” coin is harder than you would think. Many people, including dealers, won’t buy Commems because they’ve lost money. To me that’s a strong sign of contrary opinion favoring Commems!

MR:How do you feel about modern coins? When you and I were grading at NGC there was a ban on holdering coins dated after 1964. The ban was removed, the floodgates opened, and a new market was born. You didn’t like them in the past. Any change?

JA: I was harshly criticized for my comments about the modern market. Some have trounced vintage coin performance, particularly those relating to precious metals. After all, if you bought platinum coins years ago, even at high prices, you’ve done well. I still don’t believe in them as viable investments, however. When you say “market,” to me it means buy and sell but all I see are sells, not many bids. It seems to me that every week the mint is coming out with a new coin. I can’t keep track of them. A similar phenomenon occurred in baseball cards. For decades there were two or three companies making the cards. Then in the mid-1990’s there were a dozen or two more cranking them out. Then the market soon collapsed. My concern is that the mint is flooding the market. It’s very expensive for today’s modern collector to keep up with this.

MR:One strong factor supporting the vintage coin market not widely talked about is the likelihood, as you stated, that most of the worthy rare coins have already been slabbed. The supply is known. Investors can have the confidence that what they see is what they know exists. Future surprises will be few. We now have a somewhat fixed supply versus the torrent of incredible money creation since the bull market days of 1980 and 1989.

JA: That’s entirely correct. People look at something like Citicorp today and realize that there are now 25% more shares outstanding than there were a few months ago. That can’t happen with coins. You can’t have a secondary issue. The mint is not going to make more of them.

MR:You’ve been involved with slab grading since its inception in 1986, 22 years ago. Project 22 years into the future. How might grading be different?

JA: There’s been talk of a 100-point grading scale. I know that one service discussed laser-inscribing coins, which is not that difficult to do; it’s done with diamonds. I’ll keep up with any positive changes that come our way, but my main concern is that the buyer is getting value. The current economic problems will blow over. Growth will be restored and the country will do well. It’s the expansion of the wealth-effect that will underpin a strong coin market. As long as grading remains true and on the mark – serving the best interests of the public and this being the basis of any changes that are to come – we’ll all do fine.

MR:Do you have a concept of what the perfect grading service would be?

JA: Having extensive grading sets and an outside body serving in a quality control function of the services. Instead of the services buying back coins on their own, contributing money to a fund for an outside body to decide which coins to take off the market. I believe we’re approaching those concepts. Obviously the services know they’re not perfect and want to improve.

MR: What’s your take on institutions coming into the market? We saw their early footprints in 1989. Here we are 20 years later. They represent far more money now. Now we see their participation in commodities, something they never did years ago. It’s not hard to envision one or more boutique firms establishing a small position in coins and kicking off a bullish stampede like we saw in bull markets past. John, what do we have to offer to invite their participation, enabling them to be satisfied by their due diligence testing?

JA: First of all, I know for a fact there are institutions circling around as we speak. The talk is that coins are a future asset class. They’re not considered that today, they’re sort of on their own, but firms are open to the idea that they might be in the future. So, do they want to buy coins now when they are a potential asset class or wait until that becomes a reality? That’s like saying do you want to buy a relatively unknown stock today or wait until it’s invited into the S&P 500? They know that coins trade like an illiquid stock. They know they can’t pump $100 million into the market in two days. It has to be done quietly and over a long period of time. We should forget about the notion of an institution barreling into the market with everything tripling overnight. What we have to offer them is an imperfect system. That’s their opportunity! What will happen when we do perfect it? We could then have a huge expansion of prices.

MR:You’ve been a leading bidder for U.S. Type Coins. Do you have a strategy of how high you are willing to take the market?

JA: I’ve been a stronger bidder for quite some time. Throughout my career I’ve always been very bullish on Type. Essentially, I’m waiting for equilibrium in the marketplace. Take the MS-65 Small-size Bust Quarter. Bid a couple years ago was $13,000, now its $17,000. That’s a coin that was never available at or near bid. I’d go to a show and see one priced by a boutique dealer at $25,000. I know the coin is worth every penny of that but I can’t justify it to my customer. Back in the old days before grading services it would be called a MS-67. My feeling here is just get the bid up to where you can actually buy the coin. At least the next time I see a nice Bust Quarter I won’t be quoted 50% over bid, maybe 20%. Then I can more easily explain to a client.

Keep in mind that a lot of these scarcer coins were unbuyable anywhere near their bids. One reason they were so low was the downward pressure of the “C” and “D” coins. It’s like looking to buy or sell a house. In a strong market buyers had to keep raising their price to close a deal. In a weak market, sellers have to reduce prices to attract a buyer. Well, now we have a strong market and I have to raise prices to find the right coins. That’s what I mean by equilibrium. It’s been a long time coming and has a long way to go.

MR:How can you insolate yourself from undue pressure to grant labels to submitted coins?

JA: What will make CAC successful, or unsuccessful, is the fact that we are biased. We have a conflict of interest. There’s a lot of capital committed to CAC. Our critics have raised the point that we are affixing labels and making markets. But that keeps us on our guard. We have to buy the coins offered to us. I mentioned earlier the analogy of running a restaurant. Are you going to feed your family spoiled food in your own restaurant? Of course not, and this is how we view CAC. I believe that our inherent conflict keeps us sharp.

MR:Getting back to coins that look especially attractive to you for investor/collectors, what do you like for under a couple hundred dollars?

JA: That may be the area that shows great percentage gains. Your readers can have a field day trolling around looking for VF and EF Type Coins. Issues like Half-Cents, Large Cents, Two-Cent pieces, I can go on and on. Take that 2¢ piece in EF at $34. If someone had sold 1,000 of them I would buy them. But it would be impossible to find 1,000, maybe even 100. How about EF Type-2 3¢ Silver at $85? Or a Bust 10¢ in VF at $60? Way too cheap. All the way down to Trade $1’s there are bargains galore. By comparison, the earlier, more glamorous and rarer Type issues, such as 1793 Half-Cents and all Early Bust Silver, have doubled and then some the last few years. I know it’s only a matter of time before that wave touches the rest of the Type market.

MR: How about Morgan and Peace Silver Dollars. What do you like here?

JA: This is certainly one of the most popular areas in U.S. numismatics. I like all the dates from about $500 to $10,000 in MS-65. I especially like the “O” mints, such as the 1890-92. The 1890-O is bid at $1,550 and could easily be $4,000 and people wouldn’t flinch at the price. What hurts that coin, and so many others, are the “C” and “D” coins out there, and the fact that you can buy MS-64s by the boat load. As for the Peace $1s, historically they’ve not been as popular as the Morgans. Their attraction is that the set is completable and more affordable. You’ll face the same difficulties finding solid-grade examples of the scarcer dates because of the preponderance of “C” and “D” pieces in the market. The relative rarity of nice MS-65 1921 and the rarer “S” mint issues highlights that situation. Solid gems are undervalued. They’ve also been held down in price due to the abundance of MS-63 and MS-64 pieces we see in the market.

MR:What do you like in the area of Gold coins?

JA: By far the cheapest gold type coin is the MS-65 Type-2 One. In 1999 I had a client buying every one I could find. I was paying $55,000 or so, a time when gold was under $300! Last year they were $25,000, now $33,000. It has a long way to go to make up for gradeflation. If it were $75,000 it wouldn’t be out of line. That’s an example of a coin that has been punished because of its size. Typical new buyers gravitate to larger coins. When they become more knowledgeable they consider other coins, which is what I see happening for this and so many other coins.

MR:What advice can you give my readers about coin auctions?

JA: They are a great resource for consumers. They can consign coins that were graded many years ago which might grade higher today and realize much higher prices than they thought because their coins will have full exposure. On the other hand, there have been instances where coins have brought multiple time of what experts would say a coin is worth, clearly astonishing prices. Most collectors know what they’re doing but sometimes investors can get carried away like this. I’d recommend that such folks hire an experience pro to advice and bid for them. It would cost them a very modest fee but be worth it in the long run.

MR:What makes you so confident to say that gradeflation has ended?

JA: I’m not a submitter but if you were to speak to dealers who submit many coins they would tell you that in the last six months or so grading has tightened. I’ve heard the theory that CAC is responsible for that, another is rising prices. If I’m in the grading room, I’m supposed to be immune to prices; but, if a Bust Quarter is $13,000 versus $25,000 I believe you look at the coin differently. The 1922-P $20 at $5,000 bid has to look different than then it was below $2,000.

Another thing, it’s very evident to me that buyers control the grading standards. I remember back in 1985 there were several companies in Minnesota pushing the MS-63 13-piece U.S. gold type set. At that time, Type-2 Ones in AU-58, obvious “sliders,” were bringing $10,000-$11,000 and being sold retail for $15,000+ as MS-63. That was before today’s slab grading services. It was the buyers who controlled the grading. They said this is what we want the coin to look like.

Fortunately times have changed and it has taken meetings, such as the one that took place in Orlando this past January which you attended, Maurice, where large buyers and retailers voiced their concerns, making them known to the major grading services. We’re already seeing the positive effects in the market making me feel that this thing we call gradeflation has truly ended.

THE RNA SUMMATION

Has it, indeed, ended? While it won’t become apparent until some time has passed, the market is firmly suggesting that we’re on the right path. It likes what it sees and is responding positively. Is John’s CAC responsible for it? For sure, he gets some credit but, as he said, buyers control grading. That’s where all of us should be congratulated for exerting the pressure that helped to launch CAC in the first place and convince the services that this was a force to be reckoned with.

I came away from the interview with several important thoughts. One, is what John describes as his desire to achieve equilibrium in the market. He defines that as CAC successfully implementing its strategy to distinguish the solid-for-the-grade coins from those of lesser quality. Armed with this mechanism, buyers will have more confidence to bid for coins, not fearing that they would be hit with coins of inferior quality. With less confusion and more certainty, increased participation would ensue, and coins would be unencumbered to seek their rightful price levels. John gave us examples of the Small-Size Bust Quarter, Barber Quarter, the 1922-P and 1923-P $20 Saints.

Another thought is something I have expressed in these pages over the years: institutional participation in our market. For sure, the exciting prospects of how the market is responding now makes that prospect brighter, but John revealed to us that institutions are “circling around” as we speak. His, and my, point that opportunity knocks when the majority doesn’t see what you correctly see, can be an appealing attraction to one or more forward-thinking, large investment firms. Should such a firm make a $100 million commitment to rare coins patiently over some time, that amount might well represent a pittance to their overall managed funds. Yet, when their completed efforts are made known, it would have the effect of throwing a boulder into a bathtub! The barreling in that John mentioned will come the end of the bull market, affording us the green light and easy means to exit our position with plentiful gains.

Continuing with this second thought is the sheer awesome comparison of the size of today’s total market of investible money to the relatively tiny coin market. Since the historic bull market Tops of 1980 and 1989, money ahs expanded multi-fold, over some 10-times since 1980 alone. Yet, the supply of rare coins is substantially the same. Yes, there have been some hoards and discoveries, and, yes, high prices have drawn out of hiding some coins previously unknown. But, by and large the population of rare coins is the same.

My point: if rare coin prices reached their heights in 1980 and 1989 amid the pool of investment capital existing at the time, to what heights can they go during this bull market? If you think I’m being too grandiose with such an assumption, it might not matter because the hype that could eventually engulf the bull market will be entranced by that assumption and many others.

The third thought is the bounty of wonderful values in the market. John’s waxes on about coins as seemingly unimportant as EF Half-Cents and 2¢ pieces while recently buying such high-powered coins as: two 1894-S Barber Dimes, and 1838-O Bust Half-Dollar, and a MS-69 $20 High Relief. There is opportunity at every dollar level. You need not be a multi-millionaire to do well. As our market achieves “equilibrium” amid a healthy, robust bull market anyone can be a winner!

Another thought: the creation of independent, outside governing and supervisory body to self-regulate the grading services and, perhaps, other market-making mechanisms. This reminds me of the Securities Act of 1933, and the Securities Exchange Act of 1934 which created the SEC. Done properly, the industry shouldn’t fear their loss of independence and outsiders snooping into their affairs. By the time this idea has legs, the industry will have grown substantially. Such a protective structure will be necessary to maintain and increase confidence in the market. I view it as the natural maturing for our industry to aspire to, not avoid.

Bottom-line: CAC provides the buyer with an additional layer of information to make an informed decision. It leads to buyer confidence. The reason CAC’s existence is the services’ failure to deliver the right product to satisfy the growing demands of a discriminating public. At first, they resisted the intrusion of CAC; now they are adapting themselves to coexist. Their efforts to tighten grading speaks to this. As long as CAC holds fast to its mission, its stature can only increase. To stay informed of CAC’s services and developments, go to their website CACcoin.com.

I’ve seen similar “intrusions” in the past: the Greysheet coming on the scene in 1963 making “secret wholesale prices” available to the public; ANACS in the late 1970’s essentially placing itself between the relationship of the dealer and his customer; and in 1986 PCGS itself helping to level the playing field of knowledge and reduce the edge that some dealers believed they had. Such intrusions were really innovations that greatly improved our market. So it will be with CAC.

The Rosen Numismatic Advisory is published six or more times a year by Maurice Rosen / Numismatic Counseling, Inc. REPRODUCTION OF ANY KIND IS PROHIBITED